Senior project 8000 words

Senior Seminar I Chapter 1: History of the Spanish Banking

Student ID: 000055930

Richmond International University

Professor: Sarah Chetin

The History, Revolution and Present Situation of the Spanish banking

Ancient Era

Based on the 1962 Parent Act, that governed the Credit and Banking Institutions within the dictatorial post-Civil War, an industrialization approach sought to replace imports through the initiation of an economic planning process to last early 70’s. By 1965, there were five principal private banks that controlled more than 50% of the capital in Spain. They influenced both the private and independent institutions like state railroads and INI. With time, many equity holdings in the banks were sold to the public through the stock exchange, yet they played a critical role in offering new funds for the industry. According to FESSUD (2012). Resource allocation targeted production activities that the government saw as strategic within the Interventionist regulatory model. Private and saving banks had to be regulated through the establishment of minimum investment rations and limitation policies to bar entry of foreign banks. Privileged financing circuits made up 35 % of the overall resources within the credit system. Later, the act’s legislation fostered business promotion and long-term financing activities through separation of banks from commercial and payment –based activities. Alongside that change, was the revitalization of the monetary policy through the introduction of liquidity, cash, and guaranteeing rations through the supervisory structure. The Banco de España became the supervisory body that monitored both banks and credit institutions by 1988.

Industrial Time

Between the 1977 and 1985, Industrial crises and sequential banking crisis occurred as oil prices rose Spanish financial system is regulated under the banking sector. In the mid-70s, the Spanish banking system became to experience liberalization in which extensive economic restructuring occurred. As such, a banking crisis emerged as economies advanced with business banks, private banks, and industrial banks being reduced as healthy banks took over and enlarged as well as internationalized the remaining and biggest banks simultaneously. Since then a financialization process started in Spain. When restrictive policies came handy after 1977, financing costs increased while the aggregate demand was regulated such that the industrial sector could not any more manage to finance and meet the demands of their business. The Bank of Spain assisted in setting up the Deposit Guarantee Fund that protected deposits in the troubled banking institutions. The Fund bought the institution in question as a symbolic price and restructured the programme within the new sheets before selling it. To reform the inherited dictatorial model, the bank sector was uncoupled from industry through a regulatory transformation that aimed at liberalizing the financial system. It was approved in 1974 hence enhances de-specialization of saving banks and enabled them to conduct operations as other banks (FESSUD, 2012). In 1981, deposit rates were liberalized and in 1978 foreign banks were allowed to enter the market. Then in 1988, a Law governing the Securities Market came into place as accounting standards and doubtful credits were eliminated by The Banco de España. By the late 1980s, the banking system of Spain had undergone sweeping changes a form of a throwback to the post-Civil War Franco era in which Spanish private banks served a leading role in financing.

Saving banks dominated in the rural areas because private banks failed to show interest in it. Saving banks came under the control of the bank of Spain in 1971 because previously they had their formal governing body called the Credit Institute for Savings Banks for they have a quarter of the overall lending in the private sector. Since then, the saving banks have restrictions which later relaxed in the mid-1980’s with La Caixa and La Caja de Madrid. Although savings banks were considered as non-profit institutions, they were profitable and rivals of commercial banks by lending families and small businesses.

The Banesto crisis

In the Banesto case, which is the second, the bank sector was reorganized as mergers mushroomed reducing saving banks from 76-51. According to Walker et al. (1896) , the Royal Decree 1582/1989, enactment ordered the unrestricted territorial expansion of the financial institutions such as Banco Bilbao with Banco Vizcaya, merged into BBV, the current BBVA between 1989-1999 as well as Banco Central and Banco Hispano Americano into BCH in 1991 and Banco de Santander with BCH to form Banco Santander. In 1993, an economic decline Banco de España restructured Banesto, which was taken over by Banco Santander in 1994.With crisis came market-based banking to enhance higher financial pool (Hardie, 2013). Still, the mechanism proved to be the worst for Spain because of the financial devastations and the financial troubles it built.

International trade Finance Involvement

ICO as an Oversea Trade Bank fond in 1924 to promote exports but the capital was in the private hands. It participated in foreign trade. The freeing of funds tied to government-based investments could do away with the ‘privileged circuits’ through which funds at low-interest rates were often channeled into such investments. In mid-1988 legislation was organized to restructure the role of publicly owned banks through conversion of credit institutions into ICO. Spain then joined the European Union and so the already existing tendency to treat every financial institution equally was reinforced. A banking passport became necessary as foreign banks increased in Spain (FESSUD, 2012). The result was a reduced market share by 2009.There came intense internationalization and dynamic provisions in deposit-taking institutions. As the credit rates were lowered so did the credit demands increase diverting money towards the property market. Family assets were major on the map but there were limits on securitization of credits as a collateral process in the financial mechanism. Another crisis stepped in which high solvency rates, dynamic provisions or particular profit levels and decent seclusion of particular reserves. In 2012 the default rate for mortgages was 3.2 % a thing that started since the economic recession of 2008 (Martin-Aceña, 2013). As such credits that were to be paid in 15 years had to be redistributed to 25.5 years. As a regulator, Banco de España send messages of warning to commercial and savings banks (Committee on the Global Financial System ). Besides the banking system risk and resilience evaluation began to emerge as the governance versus management of the banks revolutionized.

Stock Market.

Another financial system is in Spain has been the stock market that started since the 1981 evolution. By 1981, its turnover was 16.3 percent and it grew exponentially up to 159 % in 2007. The overtaken banks were purchased by the Spanish banks to keen the Spanish financial system under the Spanish credit institutions and moderation was underway up to the 90’s. Since there is funding of Spanish non-financial institutions and more mortgages to the household sector from the credit institutions, there had been a rise in the number of assets grew (FESSUD, 2012). Nonetheless, non-financial private agents and financial institutions have faces indebtedness even from external sources as the dependence on international monetary and financial markets grow. As such the deposits by the external world are hiring in the Spanish banking system and the difference has been growing up until the late 90’s. Tortella, (2013) opines that even though the financial systems of Spain changes, their financialization remains traditional with predominant loan weight in the balance sheets of credit institutions that rose.Credit institutions fell under the control of the Directorate General for State Assets monitored by the Official Credit Institute that got funds from the state which were then lent to the credit institutions. The Industrial Credit Bank was the largest in industrial loan provision. On the other hand, The Mortgage Bank of Spain offered mortgage loans for urban and rural for agriculture and associated sectors. There were local Credit banks served provincial and municipal administrative bodies.

Particular Banks and Operation

Among the ancient banks in Spain, is Caixabank that started in 1904 and was established by Francesc Moragas targeting new economic and social savings as a unique management model. Martin-Aceña (2013) opines that by 1955 the bank was developing social housing, then commercializing credit cards in 1975. Between 1980.1990 in launched a plan on infrastructure and services generating returns before it integrated Caja de Ahorros y Monte de Piedad de Barcelona (Ciaxabank, 2014). In 1918, the organizational structure changed and IT systems emerged in 1963. By 1979 ATMs came up, thus 2011 the bank has begun stock marketing just after the restricting and investment changes in 2008 and 2007 respectively.

Herzog & de Meuron in BBVA (2015) started in 1981 under Francisco Javier Sáenz de Oiza. It is within Madrid, Paseo de la Castellan. With the focus on sustainability and efficiency, BBVA had embraced digital transformation to meet the needs of the 21st C customers and rethink of how to do to banking and go beyond the conventional ways.

Current Banking System

There is a volatile global financial market as a result of the EU that encourages UK citizens to exit the union in 2015 with an aim of correcting the prices of assets in Spain. Intensive regulation on leans and loss-absorbing liabilities has been reinforced. By 2012 cumulative asset grew by 2.5 % while nonperforming loans fell by over 37 billion Spanish pounds (Linde, 2016). The consolidated income went down by €14 billion and banking activities are a bit low. On the cooperative sector, the financial weight was as equal to what commercial banks suffered. Its overall assets were €131 billion by Dec 2015 with Cajamar dominating in it. The individual statistics show that the cooperative sector had about 18,000 staffs in 4300 offices. In their extensive assets, the private sector deposits are about 70% of total assets (Linde, 2016). 7% of their credit serve the non-financial and households and their net income read as more than €450 million in 2015 with a return on equity of 4.8%. Therefore, there are great changes and focus on improvement in the Spanish banking system in the present generation.

The trend in the Digital Banking in the World and Spain

Kirakosyan, K. (2014) purports that social media is trending in the global world, hence making the social aspect inevitable in work. Prodanova et al. (2015) opine that with the emergence of new technologies, there has been continuous development and e-commerce, among which m-commerce stands out. Banks utilize smartphones, internet, automated teller machines, and telephone. The social media illustrates, advances, and transforms that interaction, collective co-existence, engages people who have collective objectives, for they manage to share ideas, cooperate, collaborate in innovating, participation, dialogues, and networking (Kirakosyan, 2014).

Conversely, Cafral (n.d.) opines that proliferation of technology gadgets has intensified communication among people (P. 5). Social media has also inspired direct engagement with clients. In the social trend, at least fifty-four users do read online reviews prior to making purchases, enhance purchase decision, posts that influence purchases, and enhance following of brands. There is needs to assess their opportunities, target audience, current environment, the impact of brand, gauge client’s sentiments, interests, demographics, and competitors. Also, listening to the clients enhances improvement of the brand, learning and understanding the competitors better through complaints, emotional sentiments, customer’s perspectives, and planned campaigns.

In Spain, about twenty-two percent of the online buyers buy more than sixty percent of their products online, thirty-three percent of mobile users do bank through mobiles (Pradonova, et al., 2014). Due to the popular utilization of mobiles, the banks are increasingly adopting multi-channel active to satisfy clients, increase profits, and have channel mix. Moreover, the adaption enhances usage of a variety of media, open marketing, choices of buying of goods from diverse channels that fulfills the customer needs (Pradonova, et al., 2015). It has helped m-banking which is time and money saving, easy to use, convenient, and compatible with several channels. Still, online channels localize, offer location free access, the immediacy of reaction, instant connectivity, the continuous interaction of a bank and the clients, as well as ubiquity.

With m-banking banks have a chance to keep innovating the way they serve customers and manage financial transactions. The real data bank database of the customers could show their dislikes, perceptions, motivations, hence affording personalized services for the customers (Prodanova et al., 2015). The technologies emerging day after day brings about change in interaction as they create virtual communities and networks who compute mediated social actions through social media (Kirokasyan, 2014). People share pictures, videos, content, collaborative projects, virtual games, that are both personal and business-based.

Most utilized information on Facebook.

The managerial view on social media utilization in the banks in Romania is that Facebook and LinkedIn are the highly used. Additionally, banks restrain from using it because of lacking strategic know-how of application, senior management understanding, techniques and competencies within banks, and the dedication of the social media manager (Miklaszewska, 2017,p.7). However, customer care, customer demand and behavior recognition, advanced crowdsourcing, innovativeness in marketing tasks, and latent customer attainability encourage usage.

Social media helps people converse with the audience, build relation with prevalent and potential clients, reaching banking visibility, and transparency. In Romanian banks. Besides, they monitor public awareness, enhance distribution of information as well as create customer retention through retention programs (Torres-Toukoumidis, 2017, n.p.). Other purposes include; brand strengthening, creating customer relationships and managing it, cross-selling, reduction of the promotion of expense as well as the HR purposes.

Miranda et al (2013) note that social media has become popular in major international banks. Facebook serves clients who examine commercial possibilities while the banks identify principal competitors and the social network positioning. The network disseminates information and audience love it because they have a room of offering an opinion. The fact that Facebook has a great popularity among audiences and greater interactivity makes it attractive for users. That interaction offers brand awareness, recommendation testimonials, complaints management, viral marketing, outbound communication, positive feedback publications, business development, and fan club connection.

Items Valued by Clients

Among the content items on Facebook are video bank information, photo product information, career contact form, downloads’ e-mail data as well as gamification and contests on phone. Other items are an S-commerce application in external links, website polls, coupon or specific offers in location, charity events in events, and finally claims and suggestions in the marketing messages.

According to Miklaszewska (2017) Spanish la Caixa bank scored 74 out of 82 while Spanish BBVA is 63 out of 82 in the online banking (p.271). The basic IT system implementation is a recent concept that is coming with the new generations who value e-banking. Banks did not struggle with old versus new systems at all especially because of the full-range accompanying solutions.

The digital Banking in BBVA Spanish Bank

Digitalization has emerged in BBVA now. According to Álvarez et al.(2016), although regulation is affecting globalization in banks, cross-border lending is still possible through digital processes. BBVA (2015) mentions that the bank is architecturally developed, hence their working environment is more innovative with collective intelligence. The company has pioneered the bank efforts, in the radical change of its platforms, which serve the needs of the clients. Consider the data in diagram 1 in the Appendix.

In Spain, 14.4 million people use online, 75 percent on who view telecommuters are productive, 89 % consider it because it allows them to stay at work, while 85 % consider it less stressful as it does not have any unnecessary traveling. The bank cooperates culture has evolved by having a collaborative working environment that offers cloud-based co-editing of office processes (BBVA, 2015). The company now hires individuals that are innovative, technologically advanced to enhance the reality of social media in the cloud, analytics, social, and mobile technologies. BBVA believes in the knowledge and skills of the team that builds a broad, complete vision (BBVA, 2016). Therefore, the bank ran pilot tests on new spaces,

The bank has changed its business operation and now has an Internet of Things with support voice and data communications, improved service, collaborative spaces, remote co-editing, digital signage Interior location-based services, a cloud-bound desktop for technical functionality (BBVA, 2015). The need for portability and mobility has been assured through Bring Your Own Device trend and personal gadgets like tablets and smartphones. Furthermore, cloud computing, smart devices, Big Data, and artificial intelligence offers personalized services, diversification, and predictive models that distribute y the emotional needs of the clients. With Apúntate, an internal job posting app, the company has managed to hire people of talent, train people with varied courses (BBVA, 2015, p.324). Therefore, the bank has utilized technology in the highest ways that are both innovative and focusing more on internal development before the external consideration in a manner that is similar to Santander and Caixa but with a unique touch and prioritization.

The digital banking in Santander Bank of Spain

Santander applies social media through utilization of google plus, twitter, SlideShare, website, as well as Pinterest that permit customers to see their products, policies, new ideas, service provision as well as like, follow and make comments. The platforms too show rival companies, photos and videos of organizational operation, statistics about their performance (Santander Bank, n.d.). Furthermore, the bank has blogs that allow the management deliver content to the workers, clients, as well as the followers and familiarise with the organization as well as their operations. The presentations, videos, and documents on their site sell Santander’s image and products. Due to these platforms, the bank accesses a lot of clients some of whom are banking with them.

The digital banking in Caixa bank of Spain

Miklaszewska mentions that (2017) Spanish la Caixa bank scored 74 out of 82 (p.271). Caixabank, which is the first bank in Spain is known for installing the digital focus through electronic transactions, and about 55 percent internet and mobile channels. The bank offers crowdsourcing platforms through which they receive client ideas, online banking since 2009 with an active mobile and online base (CaixaBank, 2014,p.32). At the moment banks like Caixabank initiated digital platforms like Blackberry’s Apple World, Android Market, and AppleStore for financial service distribution in transfers (CIAXABANK, 2017 p. 10). Other services are: management of accounts, checking of balance sheets, customer service, and agency location in 2009. Ciaxabank (2016) has a sixteen percent yearly growth of m-banking clients a broad network in Spain due to its 5,027 branches and 9, 479 ATMs.

CIAXABANK (2017) notes that it’s the most innovative bank based on EFMA rating and the best private bank in digital communication because of the imaginBank technology of 2016, and Omnichannel approach of banking usage (p.4). It leads to the national and global online banking market penetration with 5.3 million clients. With the internet and digital usage, they have managed to increase loan and advances, reduction of risky loans, as well as profits. The platforms have maintained clients and given a high rating reputation to the bank.

Conclusion

Overall, the Spanish banking system started from dictatorial and quite restrictive processes. There have been several crises including depression, industrial era, The Banesto, and the low –interests following entrance to the EU. Apparently, the transformation has been essential, from dictatorial, to regulated, to open banking business, internationalization, and back to regional followed by digitization. All in all, the current trends show a lot of hope despite the decline in profits, indebtedness, and failure to pay mortgages while relying on external capital.

References

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Appendix

Source: Prodanova J., San-Martín S. & Jiménez, N. (2015). The present and the future of m-banking according to Spanish bank customers. p. 104

Picture 1:p. Frequent Users 102